| Tue 24 Feb 2015, 10:17 | | MONDI PLC - Full year results for the year end |
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MND MNP 201502240017A
Full year results for the year ended 31 December 2014
Mondi Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1967/013038/06)
JSE share code: MND ISIN: ZAE000156550
Mondi plc
(Incorporated in England and Wales)
(Registered number: 6209386)
JSE share code: MNP ISIN: GB00B1CRLC47
LSE share code: MNDI
As part of the dual listed company structure, Mondi Limited and Mondi plc (together 'Mondi Group') notify both
the JSE Limited and the London Stock Exchange of matters required to be disclosed under the Listings
Requirements of the JSE Limited and/or the Disclosure and Transparency and Listing Rules of the United
Kingdom Listing Authority.
Full year results for the year ended 31 December 2014
Highlights
- Excellent financial performance
- Underlying operating profit of EUR767 million, up 10%
- Underlying earnings of 107.3 euro cents per share, up 13%
- Strong contribution from all business units
- Capital projects delivering meaningful contribution
- Completed investments delivering to plan
- Strong capital investment pipeline
- Good progress in integrating acquisitions
- Bags and kraft paper acquisition in US, extending global leadership
- Consumer Packaging acquisition in Poland increases capacity in low cost location
- Recommended full year dividend of 42.0 euro cents per share, up 17%
Financial Summary
Year ended Year ended Six months Six months
31 31 ended 31 ended 31
December December December December
EUR million, except for percentages and per share measures 2014 2013 Change % 2014 2013 Change %
Group revenue 6,402 6,476 (1) 3,254 3,134 4
Underlying EBITDA(1) 1,126 1,068 5 573 514 11
Underlying operating profit(1) 767 699 10 390 333 17
Operating profit 728 605 20 354 320 11
Profit before tax 619 499 24 307 270 14
Per share measures
Basic underlying earnings per share(1) (EUR cents) 107.3 95.0 13
Basic earnings per share (EUR cents) 97.4 79.8 22
Total dividend per share (EUR cents) 42.0 36.0 17
Free cash flow per share(2) (EUR cents) 55.0 64.1 (14)
Cash generated from operations 1,033 1,036
Net debt 1,613 1,619
Group return on capital employed (ROCE)(3) 17.2% 15.3%
Notes:
1 The Group presents underlying EBITDA, operating profit and related per share information as measures which exclude special items in order to
provide a more effective comparison of the underlying financial performance of the Group between financial reporting periods. A reconciliation
of underlying operating profit to profit before tax is provided in note 3 of the condensed financial statements.
2 Free cash flow per share is the net increase in cash and cash equivalents before the effects of acquisitions and disposals of businesses,
changes in net debt and dividends paid divided by the net number of shares in issue at year end.
3 ROCE is underlying profit expressed as a percentage of the average capital employed for the year, adjusted for impairments and spend on
strategic projects which are not yet in operation.
David Hathorn, Mondi Group chief executive, said:
"I am pleased to report another successful year for Mondi. Underlying earnings per share increased
by 13% to 107.3 euro cents per share and our return on capital employed was 17.2%, with a strong
contribution from all business units.
During the year, we made good progress in growing the business. We completed a number of key
capital projects, including the 155,000 tonne per annum bleached kraft paper machine in the Czech
Republic, the recovery boiler in Slovakia and the 100,000 tonne per annum softwood pulp dryer in
Russia. Over the past 18 months, we have approved further major projects amounting to a total
capital commitment of around EUR420 million, thereby ensuring a strong pipeline for future growth. We
extended our global leadership position in industrial bags with the acquisition of Graphic Packaging's
bags business in the US, while in Consumer Packaging, we acquired a modern converting plant in
Poland.
The Boards have recommended a final dividend of 28.77 euro cents per share, bringing the total
dividend for the year to 42.0 euro cents per share, an increase of 17%.
Economic growth is expected to remain below historical averages in the regions in which we operate.
We expect this slow economic growth to continue to impact on demand for our products in the short
term, although underlying industry fundamentals remain generally sound, with supply/demand
balance supported by supply-side constraint.
Recent exchange rate movements provide a mixed impact, although with a clearly positive bias when
considered for the Group as a whole. Furthermore, the recently completed capital investments and
ongoing projects should contribute meaningfully to our performance going forward. As such, we
are confident of making further progress in the year ahead."
Overview
In 2014, Mondi delivered an excellent financial performance despite the continued slow economic growth in a number of key markets,
testament to the Group's robust business model and high-quality, low-cost asset base.
Revenue was broadly in line with the prior year. On a like for like basis, selling prices and volumes were
similar to the prior year, with revenue boosted by the acquisition of the bags business in the US, offset by
negative currency impacts and disposals or closures of non-core businesses.
Mondi's underlying operating profit of EUR767 million was up 10% on 2013. Packaging Paper continued to deliver
very strongly despite a generally weaker pricing environment, driven by cost reduction and currency benefits.
The Fibre Packaging business benefited from lower paper input costs and good volume growth. Consumer
Packaging saw a strong improvement in trading in the second half of the year. Coupled with the benefits of a
number of sales and margin improvement initiatives, the business was able to deliver a pleasing improvement in
year-on-year performance. Uncoated Fine Paper came under pressure from weaker pricing and negative
currency effects but nevertheless continued to deliver strongly, while the South Africa Division benefited from
higher average selling prices and the weak rand. Contributing to these results were the benefits from recently
completed capital investments, primarily around energy efficiencies and other cost optimisation in the pulp and
paper operations, and continued strong cost management across the Group.
While acquisition led growth remains a key component of the Group's strategy, and opportunities continue to
be evaluated as they arise, management currently sees greater opportunity for value-enhancing growth
through capital investments in existing operations. A number of key capital projects were completed during
the year, including the 155,000 tonne per annum bleached kraft paper machine in the Czech Republic, the
recovery boiler in Slovakia and the 100,000 tonne per annum softwood pulp dryer in Russia. Over the past 18
months further major projects were approved, amounting to a total capital commitment of around EUR420 million,
thereby ensuring a strong pipeline for future growth. The Group extended its global leadership position in
industrial bags with the acquisition of Graphic Packaging's bags business in the US in June, while in
Consumer Packaging, a modern converting plant in Poland was acquired in July.
Volatility in foreign exchange rates had a significant impact on the performance of the different business units,
although the net impact on the Group was limited. The sharp devaluation of the rouble in the second half
negatively impacted the domestically focused Russian operations of the Uncoated Fine Paper business unit,
while benefiting the export orientated Russian Packaging Paper activities. Rand weakness supported
the export business from South Africa. The stronger US dollar versus the euro had a net positive impact on
US dollar denominated export sales, although the greater impact is expected to be in the support it provides
going forward to European pricing levels given the reduced import threat.
The Group benefited from a general reduction in variable costs compared to the prior year. European wood costs were
lower as a result of lower demand and currency effects. Paper for recycling costs
were 3% lower than the previous year. Chemical input costs, particularly starch, also declined during the
year. The packaging converting operations benefited from lower average paper input costs. Benchmark
polyethylene prices were broadly in line with the previous year but declined sharply towards the end of the
year as a consequence of lower oil prices.
The Group benefited from lower energy costs largely as a result of the energy investments completed over the
last few years, which have significantly improved the efficiency and self-sufficiency of the larger, more energy
intensive, pulp and paper operations. Lower average oil and gas prices also contributed to the
lower energy costs, in addition to supporting a reduction in transport and logistics costs. Green energy
sales prices and volumes were higher than the previous year, providing further cost offset.
Fixed costs were lower than the previous year, driven by foreign exchange benefits and the continued
strategic focus on operating performance and efficiencies.
Consistent with the prior year, the impact of the Group's maintenance shuts on underlying operating profit was
around EUR55 million. In 2015, the effect is expected to be more significant, with longer shuts planned at certain
mills to allow for project implementation and the move of certain mills to an eighteen month rotation. The
impact on underlying operating profit, at prevailing price levels, is estimated at around EUR80 million.
Cash generated from operations of EUR1,033 million was similar to 2013 despite an increase in working capital of
EUR87 million. Excluding the impact of acquisitions, working capital as a percentage of revenue was 12.3%,
marginally above the Group's targeted 10-12% range.
Underlying earnings of 107.3 euro cents per share were up 13% compared to 2013.
The Boards are recommending payment of a final dividend of 28.77 euro cents per share, bringing the total
dividend for the year to 42.0 euro cents per share, an increase of 17% on 2013.
Europe & International - Packaging Paper
Year ended Year ended Six months Six months
31 31 ended 31 ended 31
December December December December
EUR million 2014 2013 Change % 2014 2013 Change %
Segment revenue 2,043 2,073 (1) 1,021 995 3
Underlying EBITDA 443 408 9 227 206 10
Underlying operating profit 342 308 11 175 154 14
Underlying operating profit margin 16.7% 14.9% 17.1% 15.5%
Special items (6) - (6) -
Capital expenditure 259 141 143 85
Net segment assets 1,588 1,543
ROCE 23.7% 21.7%
Building on the strong performance of 2013, Packaging Paper's underlying operating profit increased by 11%
to EUR342 million, with a ROCE of 23.7%. This was achieved on modest volume growth, lower costs and foreign
exchange gains, offset in part by lower average selling prices.
Sales volumes of containerboard grades were similar to the previous year, with all operations running at
capacity. Sales volumes of kraft paper increased as the business benefited from the successful start-up of the
155,000 tonne per annum bleached kraft paper machine in the second quarter, forward integrating pulp that
was previously sold on the open market, and the additional volumes from the kraft paper machine in the US
following the acquisition from Graphic Packaging in June.
Average benchmark unbleached virgin containerboard prices were 5% lower than the previous year. After
starting the year at lower levels than the previous year and subsequently drifting lower during the first half,
price increases were successfully implemented towards the end of the third quarter. Further prices increases
of EUR40 per tonne have been announced in February 2015 in southern Europe.
European white top kraftliner prices remained stable throughout the year. Price increases were implemented
in Russia to offset the weaker rouble.
Average benchmark recycled containerboard prices were 3% higher than the previous year. Having fallen
sharply through the first half due to increased supply from newly installed capacity, prices stabilised before a
series of price increases were implemented in the third quarter.
At the beginning of 2014, sack kraft prices were approximately 9% lower than the highs of the previous year.
On the back of a strong pick-up in demand, price increases in brown sack kraft paper of around 4% to 5%
were successfully implemented early in the second half, although average selling prices for the year remained
approximately 4% lower than the previous year. In early 2015, sack kraft prices have reduced by
approximately 2% to 4% as a result of seasonally weak demand and increased competition from producers
experiencing a reduction in their cost base from currency devaluation.
The Speciality Kraft Paper business benefited from good demand, with generally higher average selling prices
than in the previous year.
The business benefited from lower energy input costs with gas and electricity costs lower than the previous
year. Paper for recycling input costs declined marginally throughout the year impacted by lower demand from
China. Average benchmark prices were 3% lower than the previous year.
Good progress is being made in integrating the kraft paper mill in the US acquired in June 2014 as part of the
Graphic Packaging bags acquisition.
The annual maintenance shut at the Swiecie mill took place in June 2014 and the remainder of the shuts were
completed in the second half of the year.
In 2013, operating profit was impacted by the EUR11 million write-down of green energy credits following the
significant decline in market prices. Green energy prices recovered during 2014 and the business benefited
from both the increased market prices and increased volumes.
As a net exporter from Russia, the Czech Republic and Sweden, the devaluation of these currencies relative
to the euro provided a net benefit to the Packaging Paper business.
Europe & International - Fibre Packaging
Year ended Year ended Six months Six months
31 31 ended 31 ended 31
December December December December
EUR million 2014 2013 Change % 2014 2013 Change %
Segment revenue 1,852 1,690 10 984 834 18
Underlying EBITDA 166 146 14 88 71 24
Underlying operating profit 102 86 19 54 42 29
Underlying operating profit margin 5.5% 5.1% 5.5% 5.0%
Special items (16) (3) (9) (3)
Capital expenditure 77 71 47 40
Net segment assets 875 771
ROCE 13.4% 11.8%
The Fibre Packaging business continues to show steady progress with underlying operating profit of
EUR102 million, an increase of 19%, and a ROCE of 13.4%. The business benefited from gross margin
expansion and good cost control.
Higher average selling prices across all geographic regions, stable input costs and good fixed cost
management resulted in a strong improvement in the Corrugated Packaging business. Sales volumes were
broadly in line with the previous year despite the negative impact of the rationalisation activities in Turkey
completed in the previous year. The business was negatively impacted by currency translation losses as a
result of the weaker Turkish lira.
Industrial Bags had a very strong start to the year and, despite a slowdown in the second half, on a like-for-
like basis, sales volumes for the year ended 3% higher than in 2013. The volume growth, coupled with lower
average paper input costs, enabled the business to deliver a strong underlying operating profit performance.
The acquisition of the bags business from Graphic Packaging in the US, combined with the Group's existing
operations in that region creates a leading player in the North American bags market, further expanding the
Group's global footprint. Following the acquisition, a number of rationalisation and restructuring activities were
implemented, with a net special item charge of EUR10 million recognised. The business contributed EUR150 million
of revenue in the six months since it was acquired, with a negligible contribution to underlying operating profit,
as planned.
The Extrusion Coatings business benefited from good cost management, the restructuring of the Belgium
operations and stable pricing, but was negatively impacted by lower sales volumes.
Europe & International - Consumer Packaging
Year ended Year ended Six months Six months
31 31 ended 31 ended 31
December December December December
EUR million 2014 2013 Change % 2014 2013 Change %
Segment revenue 1,379 1,414 (2) 694 693 -
Underlying EBITDA 158 143 10 89 69 29
Underlying operating profit 96 79 22 57 37 54
Underlying operating profit margin 7.0% 5.6% 8.2% 5.3%
Special items (17) (13) (21) -
Capital expenditure 80 61 45 34
Net segment assets 1,021 964
ROCE 10.4% 8.7%
Underlying operating profit increased by 22% to EUR96 million. The second half performance was particularly
encouraging as the business benefited from improving volumes, input cost reductions and successful
implementation of various sales and margin improvement initiatives.
Management sought to pro-actively phase out a number of lower value-added mature products during the
year, although the weak trading conditions, particularly in the first half, made it difficult to adequately replace
these volumes by sales into higher value-added segments. Sales volumes increased during the second half
of the year in a generally more favourable trading environment.
A number of steps were taken during the year to improve the operating performance of the
business, including increasing investments in innovation activities and the business' sales and application
engineering infrastructure as well as further optimisation and specialisation of production facilities. The
acquisition of a plant for EUR17 million provides additional production capacity and, importantly, expands the
production technology base through the addition of flexographic printing technology in Poland. During the
year, the Taicang plant in China started commercial production, with good sales volumes and underlying profit
ahead of plan in its first year of operation.
Europe & International - Uncoated Fine Paper
Year ended Year ended Six months Six months
31 31 ended 31 ended 31
December December December December
EUR million 2014 2013 Change % 2014 2013 Change %
Segment revenue 1,240 1,335 (7) 594 624 (5)
Underlying EBITDA 238 266 (11) 111 116 (4)
Underlying operating profit 148 164 (10) 68 67 1
Underlying operating profit margin 11.9% 12.3% 11.4% 10.7%
Special items - (60) - (10)
Capital expenditure 117 80 58 44
Net segment assets 922 1,099
ROCE 16.1% 16.0%
The Uncoated Fine Paper business generated underlying operating profit of EUR148 million, down on the prior
year as a result of lower average selling prices in Europe and the impact of a significantly weaker Russian
rouble. Good cost control, benefits from the restructuring of the Neusiedler mill in Austria, completed in 2013,
and lower input costs provided some offset to these headwinds.
Demand for uncoated fine paper increased by around 1% in Europe, while Russian demand is estimated to
have declined by approximately 3% compared to the previous year.
Uncoated fine paper sales volumes were marginally down on the prior year due to the effects of the
restructuring at the Neusiedler mill, while sales of market pulp increased as more volume was produced at the
Ruzomberok operation following the successful start-up of the new recovery boiler. Sales into the domestic
Russian market were maintained at similar levels to the prior year despite the lower overall market demand as
the business gained market share at the expense of importers.
Average benchmark uncoated fine paper selling prices were down 2% year on year in Europe. Selling price
increases were implemented during the year in Russia, although these were not sufficient to fully offset the
negative impact of the weaker rouble. Following the significant devaluation of the rouble towards the end of
the year, a 15% price increase in the domestic Russian market was implemented in February 2015. In
Europe, price increases of 5%-8% were announced to take effect from the end of the first quarter of 2015.
The business benefited from lower wood costs in Russia, with local currency increases more than offset by
the weaker rouble. Wood costs in central Europe were up marginally. Significantly lower gas and chemical
input costs provided a further benefit to the business.
A continued focus on cost optimisation meant that fixed costs were contained well within inflationary levels.
The benefits of the recently completed recovery boiler replacement in Ruzomberok are expected to be fully
realised in 2015.
South Africa Division
Year ended Year ended Six months Six months
31 31 ended 31 ended 31
December December December December
EUR million 2014 2013 Change % 2014 2013 Change %
Segment revenue 596 624 (4) 312 299 4
Underlying EBITDA 153 135 13 75 68 10
Underlying operating profit 112 93 20 54 49 10
Underlying operating profit margin 18.8% 14.9% 17.3% 16.4%
Special items - (11) - 7
Capital expenditure 29 52 20 38
Net segment assets 626 622
ROCE 21.9% 16.0%
Underlying operating profit of EUR112 million was 20% higher than the prior year, with the business delivering a
ROCE of 21.9%. The business benefited from higher average selling prices, the weaker rand and higher fair
value gains from its forestry assets.
Domestic selling prices were, on average, higher than the previous year. Benchmark average international
hardwood pulp prices were 6% lower than the previous year, but, as a net exporter of pulp and
containerboard, the business benefited from the stronger US dollar and euro relative to the rand which offset the lower
international selling prices.
Sales volumes were similar to the prior year except for newsprint as a result of the closure of a newsprint
machine during 2013. The newsprint business realised price increases and cost savings as a result of the
restructuring and machine closure completed in 2013, enabling this business to continue to generate a
modest level of operating profit.
Higher selling prices for wood and lower input costs, attributable in part to reduced transportation costs as a
result of the oil price decline, resulted in a EUR17 million increase in fair value gains on forestry assets compared
to the previous year.
The business remains under pressure from higher administered costs with labour and electricity costs
increasing in excess of inflationary levels. Strong cost management and active measures to improve
productivity and competitiveness enabled the business to limit increases to well within inflationary levels. The
business benefited from energy sales following completion of the steam turbine at the end of 2013, which
moved the Richards Bay mill into a net energy producing position.
The maintenance shut in Richards Bay was completed during the first half of the year. In 2015, a longer shut
is required in order to conduct additional planned maintenance activities and is scheduled to take place in the
first half of the year.
Tax
The Group's underlying effective tax rate of 19% was up 2% on the prior year on changes to the underlying
profit mix and as the incentives related to previous major investments were fully utilised during the year.
Special items
Special items are those items of financial performance that the Group believes should be separately disclosed
to assist in the understanding of the underlying financial performance achieved by the Group and its
businesses. These items are considered to be material either in nature or in amount.
The net special item charge of EUR52 million before tax comprised the following:
- EUR2 million charge for transaction costs relating to the acquisition of the bags and kraft paper business
from Graphic Packaging in the US;
- EUR38 million charge for various restructuring activities and EUR6 million charge for related asset
impairments in the Speciality Kraft Paper business, Industrial Bags business, Extrusion Coatings
business and Consumer Packaging business;
- EUR4 million gain on release of a provision for transaction costs attributable to the Nordenia acquisition;
- EUR3 million gain on settlement of a 2007 court case; and
- EUR13 million charge on early redemption of the EUR280 million Eurobond.
Further detail is provided in note 3 of the condensed financial statements.
After taking special items into consideration, profit attributable to shareholders of EUR471 million (97.4 euro cents
per share) was 22% higher than the previous year (EUR386 million, 79.8 euro cents per share).
Treasury and borrowings
The Group maintains diversified sources of funding and debt maturities. Our policy is to fund subsidiaries in
their local functional currency. External funding is obtained in a range of currencies, and where required,
translated into the subsidiaries' functional currencies through the swap market.
Net debt at 31 December 2014 of EUR1,613 million was at a similar level to the previous year. Net finance
charges of EUR97 million were EUR18 million lower than the previous year, with the Group benefiting from lower
average interest rates and lower average net debt.
The fair value of the Group's debt related derivative instruments is included in the calculation of net debt. The
significant depreciation of the rouble towards the end of 2014 led to a significant unrealised gain being
recognised at 31 December 2014.
Mondi's public credit ratings, first issued in March 2010, were reaffirmed during the year by Standard and
Poor's at BBB- and Moody's Investors Service upgraded the Group's credit rating from Baa3 to Baa2. The
upgrade validates the Group's high-quality, low-cost and well-diversified asset base and is testament to the
robustness of the Group's business model and ability to generate strong cash flows through the business
cycle.
In July 2014, the 9.75% EUR280 million bond assumed as part of the acquisition of Nordenia in 2012 was
redeemed at a premium of 4.875%. The net loss on redemption of EUR13 million was recognised as a special
item. The redemption was financed from existing borrowing facilities.
Gearing at 31 December 2014 was 36%, similar to the prior year. The Group's net debt to 12 month trailing
EBITDA ratio was 1.4 times, well within the Group's key financial covenant requirement of 3.5 times.
The weighted average maturity of the Eurobonds and committed debt facilities was 4 years at 31 December
2014. At the end of the year EUR456 million of the Group's EUR2.1 billion committed debt facilities remained
undrawn.
Cash flow
Mondi's cash generation continues to be strong. In 2014, the cash generated from our operating activities
was EUR1,033 million.
Excluding the impact of the Graphic Packaging acquisition, working capital as a percentage of revenue was
12.3%, marginally above the Group's targeted range of 10-12%. The net investment in working capital during
the year was EUR87 million (2013: EUR27 million).
Interest paid and returns to shareholders amounted to EUR331 million during the year, compared to EUR322 million
in the previous year. Dividends of EUR193 million were paid to shareholders of the Group (2013: EUR138 million)
and interest paid was EUR125 million (2013: EUR124 million). Dividends paid to holders of non-controlling interests
in the Group's subsidiaries were lower in 2014, primarily due to the lower dividend from the 51% held
Ruzomberok operations as cash was utilised for the completion of the EUR128 million recovery boiler investment.
In 2014, we invested EUR562 million in capital expenditure and completed 3 acquisitions with a total purchase
price (including debt assumed) of EUR104 million.
Capital investments
Capital expenditure amounted to EUR562 million, with a number of large investment projects both completed and
initiated during the year.
The EUR70 million, 155,000 tonne per annum bleached kraft paper machine in Steti, Czech Republic was
successfully started up during April 2014.
The new EUR128 million recovery boiler in Ruzomberok, Slovakia started up in November, significantly improving
the mill's environmental footprint, making the mill 100% energy self-sufficient, reducing ongoing operating and
maintenance costs and providing additional pulp production capacity.
Around the same time, the EUR30 million pulp dryer in Syktyvkar, Russia, producing 100,000 tonnes of FSC
certified softwood market pulp per year, was also completed.
The Group has a strong capital project pipeline, with a number of significant projects underway. The
EUR166 million project in Swiecie, Poland, bringing forward the planned replacement of the recovery boiler and
coal fired boilers is progressing according to plan and on track for project start-up in the second half of 2015.
Early in 2015, the Boards approved the EUR94 million second phase of this project which will ensure full
utilisation of the new recovery boiler's capacity, provide an additional 100,000 tonnes per annum of softwood
pulp, 80,000 tonnes per annum of kraftliner and further improve the mill's product mix flexibility.
The Boards have also approved approximately EUR30 million for a project at the South Africa Division's Richards
Bay mill to upgrade the wood yard. Other significant projects in progress or approved during the year,
amounting to approximately EUR130 million, include projects intended to further modernise some of the Group's
kraft paper and converting operations, provide additional capacity and production flexibility and reduce
ongoing operating and maintenance costs.
The incremental operating profit expected from major projects in 2015 is around EUR50 million
(2014: EUR45 million), illustrating the benefits that arise from these high return investments. Given this project
pipeline, and in the absence of other major projects, capital expenditure is expected to average EUR550 –
EUR560 million per year over the next two years.
Dividend
The Boards' aim is to offer shareholders long-term dividend growth within a targeted dividend cover range of
two to three times over the business cycle. Given the Group's strong financial position and the Boards' stated
objective to increase distributions to shareholders through the ordinary dividend, the Boards have
recommended an increase in the final dividend.
The Boards of Mondi Limited and Mondi plc have recommended a final dividend of 28.77 euro cents per share
(2013: 26.45 euro cents per share), payable on 21 May 2015 to shareholders on the register on 24 April 2015.
Together with the interim dividend of 13.23 euro cents per share, paid on 16 September 2014, this amounts to
a total dividend for the year of 42.0 euro cents per share. In 2013, the total dividend for the year was 36.0
euro cents per share.
The final dividend is subject to the approval of the shareholders of Mondi Limited and Mondi plc at the
respective annual general meetings scheduled for 13 May 2015.
Outlook
Economic growth is expected to remain below historical averages in the regions in which the Group operates.
This slow economic growth is expected to continue to impact on demand for Mondi's products in the short
term, although underlying industry fundamentals remain generally sound, with supply/demand balance
supported by supply-side constraint.
Recent exchange rate movements provide a mixed impact, although with a clearly positive bias when
considered for the Group as a whole. Furthermore, the recently completed capital investments and ongoing
projects should contribute meaningfully to the Group's performance going forward. As such, management
is confident that Mondi will make further progress in the year ahead.
Principal risks and uncertainties
The executive committee, audit committee and Boards conduct an annual formal systematic review of the
Group's most significant risks and uncertainties, including how these risks are monitored and managed. Risk
management is embedded in all decision making processes, with ongoing review of the Group's risks
throughout the year as well as risk assessments being conducted as part of all investment decisions. A
number of the key risks to which we are exposed are a function of our strategy and thus are long-term in
nature and do not tend to change significantly from year to year.
Risk management is by nature a dynamic and ongoing process. Our risk management framework is designed
to address all the significant strategic, sustainability, financial, operational and compliance-related risks that
could undermine our ability to achieve our business objectives into the future. It is flexible, to ensure that it
remains relevant at all levels of the business; and dynamic to ensure we can be responsive to changing
business conditions. This is particularly important given the diversity of the Group's locations, markets and
production processes.
Over the course of the year, the audit committee has reviewed each of the principal risks set out below. In
evaluating the Group's risk management and internal control processes, the committee has considered both
internal and external audit reports and received confirmation from the finance heads of the business units that
financial control frameworks have operated satisfactorily.
The Boards are satisfied that the Group has effective systems and controls in place to manage its key risks
within the risk tolerance levels established by the Boards.
Industry capacity
Plant utilisation levels are the main driver of profitability in paper mills. New capacity additions are usually in
large increments which, through their impact on the supply/demand balance, influence market prices. Unless
market growth exceeds capacity additions, excess capacity may lead to lower selling prices.
We monitor industry developments in terms of changes in capacity as well as trends and developments in our
own product markets. Our strategic focus on low-cost production and innovation activities to produce higher
value added products, combined with our focus on growing markets, with consistent investment in our
operating capacity ensures that we remain competitive.
Product substitution
Sustainability considerations and changes in consumer preferences affect the demand for packaging
products. Factors such as the weight of packaging materials, increased use of recycled materials, electronic
substitution of paper products, increasing demand for certified and labelled goods and specific material
qualities all impact on the demand for the products Mondi produces.
Our ability to meet changes in consumer demand depends on our capacity to correctly anticipate such
changes and develop new products on a sustainable, competitive and cost effective basis. Our focus for
growth is on products enjoying positive substitution dynamics and growing regional markets. We work with
our customers in developing new markets and new products. Our broad range of converting products
provides some protection from the effects of substitution between paper and plastic based packaging
products.
Selling price variability
Our selling prices are determined by changes in capacity and by demand for our products, which are, in turn,
influenced by macroeconomic conditions, consumer spending preferences and inventory levels maintained by
our customers. Changes in prices differ between products and geographic regions and the timing and
magnitude of such changes have varied significantly over time and are unpredictable.
Our strategic focus is on higher growth markets and products where we enjoy a competitive advantage
through innovation, proximity or a production cost advantage. We continue to invest in our low-cost, high
quality production assets to ensure we maintain our competitive cost position. Our high levels of vertical
integration reduce our exposure to price volatility of our key input costs. Our financial policies and structures
are designed taking the inherent price volatility of the markets in which we operate into consideration.
Country risk
We have production operations across more than 30 countries, a number of which are in jurisdictions where
the political, economic and legal systems are less predictable than in countries with more developed
institutional structures. Political or economic upheaval, inflation, changes in laws, nationalisation or
expropriation of assets may have a material effect on our operations in those countries.
We actively monitor all countries and environments in which we operate and have established limits on
exposure to any particular geographic environment. We engage in regular formal and informal interaction with
the authorities to ensure we remain abreast of any new development. New investments are subject to
rigorous strategic and commercial evaluation. Our geographic diversity and decentralised management
structure, utilising local resources in countries in which we operate, reduces our exposure to any specific
jurisdiction.
We have around 11% of our capital employed in Russia and a limited presence in the Ukraine. The US,
European Union and a number of other countries imposed economic sanctions and other measures on
persons and corporate entities in Russia and the Ukraine. Possible additional sanctions and/or other
measures on Russia could have a material adverse effect on our business. To date, the measures imposed
have had no material impact on our operations.
Fibre supply
Wood, pulp and paper for recycling comprise approximately a third of our input costs. We have access to our
own sources of wood in Russia and South Africa and purchase wood, pulp and paper for recycling to meet our
needs in the balance of our operations. Wood prices and availability may be adversely affected by reduced
quantities of available wood supply that meet our standards for chain-of-custody certified or controlled wood,
and initiatives to promote the use of wood as a renewable energy source.
We are committed to acquiring fibre from sustainable, responsible sources and avoiding the use of any
controversial or illegal supply. The sustainable management of our forestry operations is key in managing our
overall environmental impact, helping to preserve ecosystems and resilient landscapes. We have built strong
forestry management resources in Russia and South Africa to actively monitor and manage our wood
resources in those countries. We maintain 100% FSC certification of our forests in Russia and South Africa.
We have multiple suppliers for each of our mills and actively pursue longer term agreements with strategic
suppliers of wood, pulp and paper for recycling. We work in collaboration with private and public sectors to
address challenges in meeting the global demand for sustainable, responsible fibre.
Energy and related input costs
Energy and related input costs comprise approximately a third of our variable costs. Mondi is a significant
consumer of electricity and both purchases electricity from external suppliers and generates it internally. To
the extent that we don't generate electricity from biomass and by-products of our production processes, we
are dependent on external suppliers for raw materials such as gas, oil and coal.
We monitor our electricity usage levels, emission levels and use of renewable energy. Most of our larger
operations have high levels of electricity self-sufficiency. We focus on improving the efficiency of our
operations and have invested in our operations to improve our energy profile and increase electrical self-
sufficiency, while reducing ongoing operating costs and emission levels. To the extent that we generate
electricity surplus to our own requirements, we may sell such surplus externally. We also generate revenue
from the sale of green energy credits in certain of our operations, the prices of which are determined in the
open market.
Environmental impact
We operate in a high-impact sector and need to manage the associated risks and responsibilities. Our
operations are water, carbon and energy intensive; consume materials such as fibre, polymers, metals and
chemicals; and generate emissions in the air, water and land. We are the custodian of more than two million
hectares of forested land. We are subject to a wide range of international, national, state and local
environmental laws and regulations as well as the requirements of our customers.
We ensure that we are complying with all applicable environmental, health and safety requirements where we
operate. Our own policies and procedures, at or above local policy requirements, are embedded in all our
operations. We focus on a clean production philosophy to address the impact from emissions, discharge and
waste. We focus on increasing the energy efficiency of our operations and using biomass-based fuels,
reducing our use of fossil-based energy sources. We emphasise the responsible management of forests and
associated ecosystems, protecting high conservation value areas.
Employee and contractor safety
We operate large facilities, often in remote locations. Accidents/incidents cause injury to our employees or
contractors, property damage, lost production time and harm to our reputation.
We have a zero harm policy. We continually monitor incidents and close calls and actively transfer learnings
across our operations. We apply an externally accredited safety management system and conduct regular
audits of our operations to ensure our facilities remain fit-for-purpose.
Reputational risk
Non-compliance with the legal and governance requirements in any of the jurisdictions in which we operate
could expose us to significant risk if not actively managed. These include laws relating to the environment,
exports, price controls, taxation and labour.
We operate a comprehensive training and compliance programme, supported by self-certification and
reporting. We also operate a confidential reporting hotline, Speakout, enabling employees, customers,
suppliers, managers and other stakeholders to raise concerns about conduct that may be contrary to our
values.
Financial risks
Our trading and financing activities expose the Group to financial risks that, if left unmanaged, could adversely
impact our financial position. These risks relate to the currencies in which we conduct our activities, interest
rate and liquidity risks and exposure to customer credit risk.
Our approach to financial risk management is described in notes 29 and 30 of the annual financial statements.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance
and position, the most significant risks and the Group's related management and mitigating actions are set out
above. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are
described in the condensed financial statements.
Mondi's geographical spread, product diversity and large customer base mitigate potential risks of customer or
supplier liquidity issues. Ongoing initiatives by management in implementing profit improvement initiatives
which include ongoing investment in its operations, plant optimisation, cost-cutting and restructuring and
rationalisation activities have consolidated the Group's leading cost position in its chosen markets. Working
capital levels and capital expenditure programmes are strictly monitored and controlled.
The Group meets its funding requirements from a variety of sources as more fully described in note 11 of the
condensed financial statements. The availability of some of these facilities is dependent on the Group
meeting certain financial covenants all of which have been complied with. Mondi had EUR456 million of undrawn
committed debt facilities as at 31 December 2014 which should provide sufficient liquidity in the medium term.
The Group's debt facilities have maturity dates of between 1 and 11 years, with a weighted average maturity of 4 years.
The Group's forecasts and projections, taking account of reasonably possible changes in trading performance,
including an assessment of the current macroeconomic environment indicate that the Group should be able to
operate well within the level of its current facilities and related covenants.
The directors have reviewed the overall Group strategy, the budget for 2015 and subsequent years,
considered the assumptions contained in the budget and reviewed the critical risks which may impact the
Group's performance. After making such enquiries, the directors are satisfied that the Group remains solvent
and has adequate liquidity in order to meet its obligations and continue in operational existence for the
foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing this
report.
Contact details
Mondi Group
David Hathorn +27 11 994 5418
Andrew King +27 11 994 5415
Lora Rossler +27 83 627 0292
FTI Consulting
Richard Mountain +44 7909 684 466
Sue I Ong +44 20 3727 1340
Conference call dial-in and audio cast details
Please see below details of our dial-in conference call and audio cast that will be held at 08:30 (UK) and 10:30 (SA).
The conference call dial-in numbers are:
South Africa 0800 200 648 (toll-free)
UK 0808 162 4061 (toll-free)
Europe 00800 246 78 700 (toll-free)
Alternate +27 11 535 3600
An online audio cast facility will be available via: www.mondigroup.com/FYResults14.
The presentation will be available online via the above website address an hour before the audio cast
commences. Questions can be submitted via the dial-in conference call or by e-mail via the audio cast.
Should you have any issues on the day with accessing the dial-in conference call, please call +27 11 535 3600.
Should you have any issues on the day with accessing the audio cast, please e-mail mondi@kraftwerk.co.at
and you will be contacted immediately.
An audio recording of the presentation will be available on Mondi's website during the afternoon of 24 February 2015.
Directors' responsibility statement
These financial statements have been prepared under the supervision of the Group chief financial officer,
Andrew King CA (SA), and have been audited in compliance with the applicable requirements of the
Companies Act of South Africa 2008 and the UK Companies Act 2006.
The directors confirm that to the best of their knowledge:
- the condensed combined and consolidated financial statements of the Group has been prepared in
accordance with International Financial Reporting Standards and in particular with International
Accounting Standard 34, 'Interim Financial Reporting';
- the full year results announcement includes a fair review of the significant events during the year
ended 31 December 2014 and a description of the principal risks and uncertainties;
- there have been no significant individual related party transactions during the year; and
- there have been no significant changes in the Group's related party relationships from that reported in
the half-yearly results for the six months ended 30 June 2014.
The Group's condensed combined and consolidated financial statements, and related notes, were approved
by the Boards and authorised for issue on 23 February 2015 and were signed on their behalf by:
David Hathorn Andrew King
Director Director
23 February 2015
Audited financial information
The condensed combined and consolidated financial statements and notes 1 to 19 for the year ended
31 December 2014 have been audited by the Group's auditors, Deloitte LLP and Deloitte & Touche. Their
unqualified audit reports are available for inspection at the Group's registered offices.
Condensed combined and consolidated income statement
for the year ended 31 December 2014
2014 2013
Before Special After Before Special After
special items special special items special
EUR million Notes items (note 4) items items (note 4) items
Group revenue 6,402 - 6,402 6,476 - 6,476
Materials, energy and consumables used (3,314) - (3,314) (3,391) - (3,391)
Variable selling expenses (499) - (499) (523) - (523)
Gross margin 2,589 - 2,589 2,562 - 2,562
Maintenance and other indirect expenses (283) - (283) (278) - (278)
Personnel costs (946) (29) (975) (940) (17) (957)
Other net operating expenses (234) (4) (238) (276) (10) (286)
Depreciation, amortisation and impairments (359) (6) (365) (369) (67) (436)
Operating profit 767 (39) 728 699 (94) 605
Non-operating special items 4 - - - - 7 7
Net profit from associates 1 - 1 2 - 2
Total profit from operations and associates 768 (39) 729 701 (87) 614
Net finance costs 6 (97) (13) (110) (115) - (115)
Investment income 3 - 3 3 - 3
Foreign currency losses - - - (1) - (1)
Finance costs (100) (13) (113) (117) - (117)
Profit before tax 671 (52) 619 586 (87) 499
Tax charge 7 (126) 4 (122) (98) 13 (85)
Profit for the year 545 (48) 497 488 (74) 414
Attributable to:
Non-controlling interests 26 26 28 28
Shareholders 519 471 460 386
Earnings per share (EPS) for profit attributable to
shareholders
Basic EPS (EUR cents) 8 97.4 79.8
Diluted EPS (EUR cents) 8 97.1 79.6
Basic underlying EPS (EUR cents) 8 107.3 95.0
Diluted underlying EPS (EUR cents) 8 107.0 94.8
Basic headline EPS (EUR cents) 8 99.5 91.3
Diluted headline EPS (EUR cents) 8 99.2 91.1
Condensed combined and consolidated statement of comprehensive income
for the year ended 31 December 2014
2014 2013
Tax
Before tax (expense)/ Net of tax Before tax Net of tax
EUR million amount benefit amount amount Tax expense amount
Profit for the year 497 414
Other comprehensive (expense)/income
Items that may subsequently be
reclassified to the combined and
consolidated income statement:
Fair value gains/(losses) on cash flow
hedges 2 (1) 1 (2) - (2)
Gains on available-for-sale investments 1 - 1 2 - 2
Exchange differences on translation of
foreign operations (193) - (193) (233) - (233)
Share of other comprehensive expense of
associates - - - (1) - (1)
Items that will not subsequently be
reclassified to the combined and
consolidated income statement:
Remeasurements on retirement benefits
plans: (44) 9 (35) 19 (6) 13
Return on plan assets 11 4
Actuarial gains/(losses) arising from
changes in demographic assumptions 2 (4)
Actuarial (losses)/gains arising from
changes in financial assumptions (62) 17
Actuarial gains arising from experience
adjustments 3 4
Asset ceiling movement 2 (2)
Other comprehensive (expense)/income
for the year (234) 8 (226) (215) (6) (221)
Other comprehensive (expense)/income
attributable to:
Non-controlling interests 2 - 2 (11) - (11)
Shareholders (236) 8 (228) (204) (6) (210)
Total comprehensive income for the year 271 193
Total comprehensive income attributable to:
Non-controlling interests 28 17
Shareholders 243 176
Condensed combined and consolidated statement of financial position
as at 31 December 2014
EUR million Notes 2014 2013
Intangible assets 658 675
Property, plant and equipment 3,432 3,428
Forestry assets 10 235 233
Other non-current assets 42 38
Total non-current assets 4,367 4,374
Inventories 843 746
Trade and other receivables 966 954
Financial instruments 76 6
Cash and cash equivalents 14b 56 130
Other current assets 40 30
Total current assets 1,981 1,866
Total assets 6,348 6,240
Short-term borrowings 11 (176) (181)
Trade and other payables (998) (989)
Other current liabilities
